Quarterly report pursuant to Section 13 or 15(d)

Convertible Notes Payable

v3.4.0.3
Convertible Notes Payable
3 Months Ended
Mar. 31, 2016
Notes Payable and Convertible Notes Payable [Abstract]  
CONVERTIBLE NOTES PAYABLE

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

The Company issued convertible notes payable. The outstanding balance and any accrued interest is due on maturity date or when the cash is available to repay the notes payable. Under the agreement, the notes can be convertible at the holder’s discretion into common shares of the Company’s stock at a 25% discount to the price at the date of exercise.

 

The Company’s convertible notes payable is as follows:

 

Convertible Note   Issuance Date   Maturity Date   Interest 
Rate
    Original Borrowing     Balance at March 31, 2016     Balance at December 31, 2015  
                                 
Note 1   October 2, 2014   December 31, 2015     5.0 %   $ 100,000     $ 100,000     $ 100,000  
Note 2   December 23, 2015   September 23, 2016     8.0 %   $ 21,000     $ 21,000     $ 21,000  
                                         
Total                             121,000       121,000  
                                         
Debt Discount                             (1,983 )     (9,333 )
                                         
Net balance                             119,017     $ 111,667  

 

The Company adopted the provisions of FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”) (previously EITF 07-5, “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock”), as the convertible note agreement contained certain provision that the convertible note failed to pass the “fixed for fixed” criteria of ASC815, the conversion feature of the convertible debt should have to be bifurcated and recorded separately until the conversion date.

 

Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and full-ratchet provision which the Company valued the embedded derivative using the Black-Scholes method. The following table represents fair value of embedded derivative movement from the date of issuance to March 31, 2016:

 

Embedded Derivative Liabilities   Fair Value at Date of Issuance     Changes in Fair Value     Fair Value at March 31, 2016  
                   
Note 1 – Issued in 2014   $ 70,334     $ (31,815 )   $ 38,519  
Note 2 – Issued in 2015   $ 20,000     $ (20,000 )   $ -  
Note 3 – Issued in 2015   $ 10,500     $ 219,800     $ 230,300  
                         
Total           $ 167,985     $ 268,819  

 

As a result of initial recording of derivative liability of $30,500 for convertible notes issued in 2015 with proceeds of $49,000 the Company recorded debt discount of $30,500 at the date of issuance of convertible note payable for issuances occurred in 2015. The Company accretes debt discount of $30,500 for convertible notes issued in 2015 and $70,334 for convertible note issued in 2014 over the life of the convertible note. The Company recorded accretion of $7,350 and $0 for the three months ended on March 31, 2016 and 2015 which is recorded as interest expense.

 

The following table represents fair value of embedded derivative movement from the date of issuance to December 31, 2015:

 

Embedded Derivative Liabilities   Fair Value at Date of Issuance     Changes in Fair Value     Fair Value at March 31, 2016  
                   
Note 1 – Issued in 2014   $ 70,334     $ 5,856     $ 76,190  
Note 2 – Issued in 2015   $ 20,000     $ (20,000 )   $ -  
Note 3 – Issued in 2015   $ 10,500     $ 21,000     $ 31,500  
                         
Total           $ 6,856     $ 107,690  

  

As a result of initial recording of derivative liability of $30,500 for convertible notes issued in 2015 with proceeds of $49,000 the Company recorded debt discount of $30,500 at the date of issuance of convertible note payable for issuances occurred in 2015. The Company accretes debt discount of $30,500 for convertible notes issued in 2015 and $70,334 for convertible note issued in 2014 over the life of the convertible note.

 

Interest incurred for the three months ended on March 31, 2016 and 2015 was $0 and $1,251 (excluding debt discount accretion of $17,583 which is also recorded as interest expense).